PREI Sees Gradual Fall in Office Vacancies

Vacancy rates in the U.S. office market should decline gradually over the next three years from this year's peak of about 17.5%, according to Prudential Real Estate Investors.In a recent research report, PREI said some markets will recover more rapidly than others, and that investors may be able to find opportunities for greater returns in certain markets as vacancy rates peak and rents begin to stabilize. The supply of new offices has plunged since 2001 and should remain "constrained" for several years before the supply pipeline starts picking up, the company says. "Supply growth should remain subdued, and tenant demand should rise as employment growth resumes," said Youguo Liang, a managing director in PREI Research. "Office vacancy rates should fall, allowing property owners to raise rents as the supply-and-demand balance returns. For investors seeking value-added returns, the office market recovery will provide opportunities to buy assets with leasing risk in high-growth markets." The report, "The Office Market Recovery Ahead," can be found online at http://www.prudential.com/prei.